ps5ans - ECON 305: INTERMEDIATE MACROECONOMICS SPRING 2011...

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ECON 305: INTERMEDIATE MACROECONOMICS SPRING 2011 MARK MOORE PROBLEM SET 5 SOLUTIONS A. CHAPTER 9 Quick Check 1. a. False. The unemployment rate rises when output growth is less than the normal rate and falls when output growth is greater than the normal rate. b. True. c. True. d. False. The Phillips curve relates the change in inflation to the difference between the unemployment rate and the natural rate. Okun’s law relates the change in the unemployment rate to the difference between output growth and the normal rate. The aggregate demand relation equates inflation to real money growth. It is true that the aggregate demand relation implies that inflation equals adjusted money growth, which is the difference between money growth and output, but this is only a relation between inflation and output growth conditional on money growth. e. False. In the medium run, inflation equals adjusted money growth, which is the difference between nominal money growth and output growth. f. True. g. Uncertain. In principle, the statement is true, but nominal rigidities may make even fully credible policy costly. h. True. i. True. 2. a. The unemployment rate will increase by 1% per year when g=0.5%. Absent output growth, productivity growth tends to increase the unemployment rate, since fewer workers are required to produce a given quantity of goods. Absent output growth, labor force growth also tends to increase the unemployment rate, since more workers are competing for the same number of jobs. Therefore, unemployment will increase unless the growth rate exceeds the sum of productivity growth and labor force
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This note was uploaded on 05/26/2011 for the course ECON 305 taught by Professor Dekle during the Spring '07 term at USC.

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ps5ans - ECON 305: INTERMEDIATE MACROECONOMICS SPRING 2011...

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